Reopening of income tax assessment where source explanation was accepted barred reassessment of same investment; addition deleted.

Reopening of assessment based on recorded reasons to believe must be supported by fresh, unexplained material; where the assessing officer had accepted the assessee's explanation regarding the source of investment in property, the assessor lacked lawful basis to reopen and make additions concerning that same investment, resulting in deletion of the addition. The note treats the acceptance of explanation as determinative of the scope of reassessment and precludes independent fresh additions on the identical subject-matter when no new incriminating material exists.

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Issues: Whether, in reassessment proceedings initiated under section 148 read with section 147 of the Income-tax Act, 1961, the Assessing Officer can make an addition on a ground not forming part of the reasons for reopening after having accepted the explanation in respect of the very subject-matter on which reassessment was initiated.

Analysis: The challenge concerns reassessment initiated on the basis of alleged property transactions and whether, having accepted the explanation regarding the source of that investment, the Assessing Officer remained competent to make an addition on a different head of income not reflected in the recorded reasons for reopening. Relevant statutory provisions include sections 147 and 148 and the procedural safeguards in section 148A. Precedents establish that the foundational material or reasons for reopening govern the scope of reassessment and that, if the Assessing Officer ultimately concludes no addition is required on the subject-matter forming the basis of reopening, he cannot thereafter proceed to make additions on unrelated matters; the Assessing Officer cannot supplement or improve upon the reason which formed the basis for initiating reassessment. Applying these principles, the Assessing Officer accepted the source explanation for the transactions that formed the basis of the notice; consequently, assessing income on a different ground fell outside the scope of the reassessment as justified by the recorded reasons.

Conclusion: The addition made by the Assessing Officer on a ground not forming part of the reasons for reopening is not sustainable; the appeal is allowed in favour of the assessee and the addition of Rs. 35,43,224/- is deleted.

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